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S&P 500 Tear Sheet

The “Tear Sheet" below is a “reference sheet" provide some historical context to markets, sectors, etc. and looking for deviations from historical extremes.

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Sector Analysis

As stated above, the short-term corrective process over the last few weeks has reversed SOME of the overbought conditionz (see short-term chart above). However, longer-term dynamics still suggest maintaining a more cautious approach to risk-based allocations.

As suggested last week, the conditions present suggested a rally attempt over the last several days. While the rally did occur, it was very weak, to say the least. Therefore, I continue to suggest that any rally attempt continuing over the first few days of April should be faded.

Remain cautious currently as the “risk off" trade has continued to advance over the last week.

Technology, Industrial, Materials, and Discretionary sectors regained some momentum this past week as hopes of a quick turn from the Health Care failure to Tax Reform took shape. While there is a high degree of disappointment in this view, as discussed above, the group did hold important supports keeping the bullish trend alive.

Energy continues to struggle after breaking its 50-dma and broke its 200-dma last week. While energy had a bit of a bounce this week, the trend is materially weakening. While oil prices did hold the critical support level of $48, supplies are continuing to build which suggest the bounce may be transient. Caution in this sector remains highly advised until the technical backdrop improves.

Financials have broken their 50-dma and are testing the underside of that average. A failure next week will suggest a bigger correction coming for the sector that led the “Trump Trade" previously. Underweight the sector for now.

As I stated a month ago:

“Utilities, Healthcare, and Staples had their respective 50-dma cross back above the 200-dma suggesting a much better buying opportunity on sector pullbacks in the future."

We are now looking to add to our current holdings if a short-term “buy signal" is registered for the broader market.

Small and Mid-Cap stocks continued to weaken in terms of relative performance and continue to wrestle with their 50-dma. As expected last week, they did indeed get a bounce this past week, however, they have not yet recovered their relative strength which suggests caution.

Emerging Markets, International, and Dividend Yield Stocks are again very overbought. The bull trend is still intact but some profit taking and rebalancing is advised.

Bonds and REIT’s got oversold two weeks ago and performance has continued to improve this past week. If the broad markets run into further trouble look for a continued rotation in the “safety trade."

The table below shows thoughts on specific actions related to the current market environment.

(These are not recommendations or solicitations to take any action. This is for informational purposes only related to market extremes and contrarian positioning within portfolios. Use at your own risk and peril.)

Portfolio Update:

After hedging our long-equity positions 15-weeks ago with deeply out-of-favor sectors of the market (Bonds, REIT’s, Staples, Utilities, Health Care and Staples) we did rebalance some of our long-term CORE equity holdings back to original portfolio weightings harvesting a bit of liquidity.

The short-term bullish trend is still very positive which keeps us allocated on the long-side of the market. HOWEVER, the technical setup required for an increase in equity risk in portfolios is IMPROVING on a TACTICAL (very short-term) BASIS.

If a buy signal is registered in the next week, I will increase equity allocations in portfolios accordingly. However, we continue to maintain very tight trailing stops as the mid to longer-term dynamics of the market continue to remain very unfavorable.

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